China and Japan are engaged in an increasingly heated contest to be chosen to build Indonesia’s first high-speed railway with the Asian giants doing their best to sweeten deals and turn up the charm as time runs out to woo Jakarta.

The 50-km Indonesia high speed rail line should cut the journey between Jakarta and Bandung to 35 minutes from about three hours. Trains are expected to reach a speed of more than 300 km/h. Indonesia hopes to extend the line later to connect Jakarta with the city of Surabaya.

The two countries have sent envoys to lobby Indonesian officials over the past two weeks, each sweetening the terms of their bid for the contract worth about 5 billion USD.

Analysts believe that whichever party wins this will likely become the front runner for other high-speed rail projects in Asia over the coming years, including one linking Kuala Lumpur and Singapore.


China vs. Japan: Dominance of High Speed Rail in Asia

There are reports that China is gaining over Japan in this aggressive bidding battle, two government sources involved in making the decision said. The two main reasons for this are that the Chinese proposal is less financially burdensome on the Indonesian government and that the issue of safety has been adequately addressed.

Another source said that Indonesia wanted to strike a balance between the two powerhouses in handing out high-profile infrastructure projects. Japan is already the current holder of two contracts to build Jakarta’s mass rapid transit system and the biggest coal-fired power plant in the region.

When comparing the relative presence the two countries have in Indonesia, we can see that Japan is Indonesia’s second-largest investor, while China is its top trading partner.

China has been seen challenging Japan’s long-standing dominance as a key source of infrastructure funding. This race over Indonesia is just the latest to flare up.

Japan has history on its side. The country is famous for its legendary shinkansen, an impressive high-speed network that for decades has whizzed commuters between cities at great speed without a single fatal accident on the rails.

A top-three investor in Indonesia with huge stakes in the automotive and mining sectors, Japan was always seen as the country to build the high-speed railway until China muscled in with a counter offer earlier this year.

However, China is also a force to be reckoned with. Recently showcasing its high-speed rail prowess in an exhibition at a plush Jakarta mall, Beijing even had its ambassador to Indonesia associate the project to a child reared by Jakarta and Beijing.

“Our number one priority is to ensure the baby’s health and growth, rather than to rush him to make money to support the family,” Xie Fend said, fending off suggestions that China’s main motive in this project was profit.

Both countries have submitted proposals containing similar offers, and the two have offered loans to be paid back in 40 years with a 10-year grace period. The interest rate Japan has offered, however, will be 0.1%, while the Chinese offered 2%.

According to its feasibility study, Japan is ready to begin construction in 2016 and would take five years to build the system, including a one-year trial operation period. Meanwhile, China promised that it will start construction next month if it can, and the construction will be completed within three years.

The decision is key. As Luky Eko Wuryanto, Indonesia’s deputy minister of infrastructure and regional development said last Friday after meeting China’s ambassador to Indonesia, “We have two partners and it will be good if we can maintain both of them. We have to be smart when taking this decision.”

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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